India's benchmark BSE index is up nearly 45% this year, making it Asia-Pacific's best performer. It rose 42 percent in 2005, 13 percent in 2004 and 73 percent in 2003 as investors poured money into stocks to ride the rapid expansion of Asia's fourth-largest economy.
Indian software, banking and infrastructure-related stocks were still attractive investments, but the runaway rises of recent years can no longer be expected, the head of fund management at HSBC Asset Management (India) said. Mihir Vora, who oversees of 33 billion rupees of equity investments, said on Tuesday his funds were underweight on stocks in the commodities, energy and personal care sectors.
"Returns still will resemble corporate profitability growth of 15-20% compounded for next few years,...We have gone up very significantly in a short period of time," he said, adding other risks included a renewed rise in oil prices, interest rates and a change in sentiment on emerging markets.
State-run banks looked good value and, in a time of rapid growth in credit demand, their extensive branch networks were an advantage in raising term deposits that could be lent out.
"Their valuations are amongst the cheapest in the sector and the market. They are undervalued and the volatility in earnings has gone," Vora said.
Government and private investment to upgrade infrastructure could ensure steady earnings growth for companies in the engineering and construction sectors, and demand for outsourcing of software services would continue to be robust, he said.
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